Merkel Implores German Lawmakers to Back Euro Rescue Measures

Chancellor Angela Merkel of Germany, in a plea for domestic support hours before European leaders are scheduled to hold a crisis summit, beseeched lawmakers Wednesday to back measures to expand the firepower of the euro area bailout fund, even though doing so might be risky.

“The world is looking at Germany, whether we are strong enough to accept responsibility for the biggest crisis since World War II,” Mrs. Merkel said in an address to the Bundestag, the German Parliament, in Berlin. “It would be irresponsible not to assume the risk.”

Mrs. Merkel also called for a revision of the European treaty to strengthen the union’s ability to police fiscal discipline among members. She argued for stronger regulation of banks, and swift action to get institutions to build up their capital reserves. She implied that investors will have to accept a 50 percent reduction in the value of Greek bonds. And Mrs. Merkel said that Europe should be ready to accept advice and financial aid from the International Monetary Fund.

“Many questions require not only a national and European solution, but also an international solution,” Mrs. Merkel said. She praised Christine Lagarde, managing director of the I.M.F., for her role in the crisis.

With expectations low ahead of a summit of European leaders in Brussels on Wednesday evening, Mrs. Merkel’s speech was a more forceful defense of the euro ideal than has been typical of her in the past. It suggests that leaders could agree to measures to contain the European debt crisis that are broader and more comprehensive than markets and commentators have been expecting.

Mrs. Merkel cautioned that the summit would not produce a “big bang,” and that “this issue will occupy us for years.”

In contrast to the piecemeal approach that has marked European policy so far, she touched on all the main issues of the crisis and called for ambitious measures to ensure stability in the future. For example, she said, the European treaty should be revised so that the union could impose changes on countries that are losing economic competitiveness. Greece’s dysfunctional economy is at the root of its problems.

Mrs. Merkel has often seemed a reluctant European, unwilling to risk domestic political capital on unpopular measures to prop up Greece and save the euro. But she adopted loftier rhetoric Wednesday, reminding members of Parliament of the work that an earlier political generation had done to unite Europe after a century of bloodshed.

“Nobody should believe that another half century of peace and prosperity is a given,” she said. “If the euro fails, then Europe fails. We have a historic duty.”

Mrs. Merkel has been under pressure from other leaders, including President Barack Obama, to be more decisive in response to the crisis, which has become a grave threat to the global economy. Earlier this month, former Chancellor Helmut Schmidt, during an event in Frankfurt at which both spoke, delivered her a lecture on postwar European history and the toil involved in creating a unified continent.

Frank-Walter Steinmeier, leader of the opposition Social Democrats in the Bundestag, complained that Mrs. Merkel’s conversion to European advocate had taken too long. Taking the floor after the chancellor, he said, “I would have liked to hear these phrases a year ago.”

But Mr. Steinmeier said the Social Democrats would support expansion of the bailout fund, the European Financial Stability Facility, and other measures, because it is important to show that the euro project has broad support. Mrs. Merkel did not give details of how the clout of the €440 billion, or $612 billion, fund would be expanded, and said that Germany's contribution will not increase.

Mrs. Merkel also expressed sympathy for anti-Wall Street protesters in New York as well as similar actions in Frankfurt and Berlin, saying she understood how ordinary people have suffered from the financial crisis.

She took a hard line with the banking industry, saying banks must increase their capital reserves to reduce risk, accept stricter regulation, and be subject to a tax on financial transactions.

Investors must also accept a deeper cut in the value of their Greek bonds, she said. Greece’s debt must be brought down to 120 percent of gross domestic product, she said, a figure that implies a 50 percent reduction in the value of Greek bonds.

Mrs. Merkel took a more forgiving line toward the Greek people, who have been stereotyped as lazy spendthrifts by the German tabloid press. In addition, a strong faction among German economists has pushed for Greece to quit the euro area.

“We want Greece to quickly get back on its feet again,” Mrs. Merkel said.